Hungarian policy makers are in a bind when it comes to the proper level of the local currency due to the conflicting interests of households and the exporters that drive economic growth, Hungarian Prime Minister Viktor Orbán was quoted as saying by Dow Jones Newswires on Thursday.
The independence of the central bank is a related and sensitive issue, and adopting the euro isn't a realistic goal for Hungary this decade, he added.
“The value of the Hungarian currency is the trickiest thing,” Orbán said in an interview with Dow Jones Newswires and The Wall Street Journal.
“One million Hungarian households are indebted in a foreign currency. So probably, you can have a dream of what kind of monetary policy would be good for exports, but it is to the contrary of the interest of those indebted households,” Orbán said, declining to define a preferred exchange rate for the forint.
“Politically, economically, socially, to move into this territory you must be very cautious, otherwise you create lots of difficulties,” he was quoted.
Orbán's comments could ease investor fears that Hungary's monetary policy would turn extremely dovish in March, when parliament, in which Orbán's Fidesz party has a two-thirds majority, replaces the majority of the central bank's rate-setting Monetary Policy Council, Dow Jones said.
Hungarian households are mostly indebted in the Swiss franc and, to a much lesser extent, in euros. Due to carrying lower interest rates than local-currency debt, foreign-currency mortgages and consumer loans used to be enormously popular until the Orbán-led government, which came into power in spring 2010, abolished such mortgages, Dow Jones recalled.
Hungary, which took over the European Union's six-month rotating presidency last week, has a small and open economy, which is driven by exports, mostly to Germany. “History has shown long-term that Hungary's economic growth rate is twice as much as that of Germany. We are very happy that Germany has been able to keep its competitiveness,” Dow Jones quoted Orbán as saying.
Being outside the euro zone has some advantage at the moment for Hungary because of the euro zone's debt crisis, but Hungary's intention to adopt the euro “cannot be questioned,” Orbán said.
However, the euro's adoption by Hungary, which has missed several self-imposed euro-adoption deadlines, “is a question of timing and circumstances. Hungary is not in the shape to join,” Orbán said.
The government, which is keen to jumpstart economic growth, has repeatedly criticized the central bank for raising interest rates to meet its primary mandate, the inflation target. In 2009, Hungary underwent its worst economic decline in nearly two decades.
“The central bank is always perceived as an independent body of Hungarian statehood. But independence doesn't mean that you are not part of the system,” Dow Jones quoted the opinion of Orbán. “It's a very complicated and balanced relationship, but we have to respect it because politicians making comments on monetary policy is bad for the country longer term. The most complicated job on the European, as well as the national, level is to handle the central bank,” Orbán added. (MTI Econews)